Report: Patches of Hope in Slowing Switch Market

A new report from Infonetics Research on the state of the Ethernet switch market shows
that 2008 on the whole was a decent year for vendors in the space. But new signs of a
slowdown are demonstrating that the space hasn't escaped the malaise plaguing the rest of
the industry.

The research firm reported that the global Ethernet switch market hit $18.2 billion in
2008, up by 5 percent from the previous year.

Though the tally for 2008 is an improvement over 2007, the fourth quarter of 2008
showed a changing state of affairs. According to Infonetics, revenues for the fourth
quarter of 2008 dropped 2 percent compared to the fourth quarter of 2007.

The new findings come as the global economic crisis is leading to
reduced IT spending that's already cut into growth in other areas of the
industry.

"The deterioration in worldwide economic activity is finally catching up with the
Ethernet switch market," Matthias Machowinski, an analyst at Infonetics, said in a
statement. "After besting our forecast one last time in the third quarter, the market is
... down year-over-year for the first time in several quarters."

It's not all doom and gloom though, as Infonetics noted a few bright spots. Among them
is the fact that the North American Ethernet switch market actually showed a 1.4 percent
year-over-year increase during the fourth quarter of 2008.

Infonetics also pointed out that major vendors Alcatel-Lucent, Nortel and Extreme
Networks showed solid performance throughout the fourth quarter.

That hasn't spared at least one of them -- Nortel -- from trouble, however. The
company entered into bankruptcy protection in
January of 2009 and is now restructuring its business which includes the divestiture of
its Alteon application
switches.

The application switch market segment itself is also one that is in decline.
Infonetics reported that application switch revenues dropped 4 percent to $272 million in
the fourth quarter of 2008, compared to the same period during the previous year.

Networking vendors contacted by InternetNews.com were cautiously optimistic
about the Infonetics report and the future prospects of the switch business.

"Given that the downward trend started in the last quarter of 2008, it is too early to
make any conclusions as to the length of the trend, the fundamental causes or the long
term impacts," Mike Banic, vice president of marketing, Ethernet Platforms Business
Group, Juniper Networks told InternetNews.com.

Juniper itself is a newcomer to the switching market, entering it for the first time
in 2008 with its EX
switching line. Juniper is
now claiming that between 30 and 40 percent of customers buying EX switching gear
were new customers for Juniper.

HP ProCurve on the other hand is not a newcomer to switching. They too are optimistic
about the future prospects for their switching business.

"We started to see a bit of pullback, but I think our customers are still executing on
purchase plans -- it's just being delayed a bit," Mike Verdugo, director of worldwide
marketing for HP ProCurve, told InternetNews.com. "Yes, we've seen some pause, but
we're continuing to see good traction and our business is strong and stable."

Verdugo added that HP ProCurve is seeing some networking investments that may have
been considered to be more discretionary as being put off. In that category he included
Power over Ethernet (PoE) switching gear that enterprises have been considering in order
to future-proof their networks.

"We see the market leveling off to declining a bit year over year from 2008 to 2009 in
terms of revenue but we're not seeing a dramatic slowdown," Verdugo said. "I think we're
seeing continued cautious optimism on the part of our channel partners as well as our
customers."